Kaishan Co., Ltd. is the leader of domestic screw compressor, the company takes screw compressor technology as the cornerstone, actively promotes the extension of technology and industrial chain, successfully develops ORC screw expander into the field of geothermal power generation, and has become a new leader in global geothermal power generation. We are optimistic about the company's global strategic layout, targeting the leading enterprises of international air compressors, as well as strong growth potential in the global geothermal power generation field, giving a "buy" rating for the first time.

Company profile: domestic screw compressor leading enterprise, global geothermal power generation emerging leader. Through self-research and development of screw mainframe, the company has successfully broken the foreign monopoly and gradually grown into a leading enterprise in the domestic screw compressor industry. at present, it is vigorously promoting the global layout, and has set up subsidiaries in North America, Southeast Asia, the Middle East and other regions. In 2021, the overseas income is nearly 1 billion yuan, and 2022H1's overseas revenue accounts for 45%. At the same time, through the independent research and development of ORC screw expansion generator and the creation of "one well, one station" new technology path for geothermal power generation, the company has achieved rapid growth in the field of geothermal power generation in recent years and has become a global leader in geothermal power generation. The company's performance has achieved steady growth. From 2017 to 2021, the company's revenue increased from 2.221 billion yuan to 3.485 billion yuan, with CAGR of 11.9%; net profit from 104 million yuan to 304 million yuan, CAGR of 30.8%; and non-net profit from 96.94 million yuan to 277 million yuan, CAGR of 30%.

Compressor business: the company has a sound product pedigree, standard international leading enterprises. (1) Industry prospects: the market scale of air compressors in China is growing steadily. According to the forecast of the compressor network, the market scale of air compressors in China is expected to reach 64 billion yuan in 2024, corresponding to 3% of CAGR in 2021-24, in which screw air compressors account for the largest share of the air compressor market segment products. (2) Competition pattern: international enterprises represented by Atlas and Ingersoll Rand occupy most of the high-end market share. Keshan shares, East Asia Machinery, Boss shares and other domestic manufacturers with independent R & D and manufacturing capabilities of screw hosts have narrowed the gap with international leaders in recent years, and are accelerating domestic substitution. (3) company competitiveness: the company is the local enterprise with the most perfect compressor product pedigree, and its core product screw compressor technology and product power are in the forefront of the world, while vigorously promoting the global layout, with a strong sales network covering all major regions of the world, 2022H1 overseas business revenue increased by 80% compared with the same period last year, and the company's perfect product pedigree + global sales ability directly targets the international leading enterprises.

Geothermal power generation business: geothermal power generation business is expected to open the company's second growth curve. (1) Industry prospects:

There is a huge space for the utilization of global geothermal power generation, and the installed capacity driven by carbon neutralization background is accelerating. According to the Geothermal Energy Association (GEA), the global installed capacity of geothermal power generation will reach 18.4 GW 2.5GW in 2025. (2) Competition pattern: double cycle (Binary) power generation technology has become the mainstream, and Ormat occupies the main market of double cycle power generation. According to the annual report of Ormat, 62% of the total installed capacity of geothermal power generation in the world from 2017 to 2021 is installed. In the field of dual cycle power generation, Ormat, TICA (Exergy) and mountain opening account for 78%, 9% and 7% respectively, but in terms of project reserves, Kaishan has developed rapidly in recent years. According to Kaishan shares and Ormat annual report, the current Kaishan project under construction reaches 208.5MW, which is much higher than about 110MW of Ormat. (3) Competitiveness of the company: the company creates the technical path of "wellhead module" and opens up the whole industry chain from the development and construction of geothermal power plant to operation, which has obvious advantages in flexibility and economy. According to the company's website, the drilling time and cost of well T09, the Indonesian SMGP project completed in July 2020, has created the best record in the history of geothermal development in Indonesia.

Company performance driving force: (1) overseas business: the company has vigorously promoted the global layout in recent years. With strong product competitiveness and cost-effective advantages, overseas revenue exceeded 1 billion yuan in 2021, and the export revenue of 2022H1 screw air compressor increased by 80% compared with the same period last year. (2) electricity sales business: as the company's geothermal power generation projects are connected to the grid one after another, the high-margin power sales business has become the company's growth business, with revenues of 256 million yuan (+ 31%) and 206 million yuan (+ 161%) respectively in 2021 and 2022H1. (3) Geothermal power generation equipment + EPC business: in 2019, the company won an order of US $65 million for the EPC project of geothermal power plant in Kenya, and the project is currently being implemented smoothly. With the company's profound technical experience and cost advantages, as well as the original "one well, one station" model that has been successfully verified, it is expected to gain considerable market share in the field of geothermal power generation equipment + EPC in the future.

Risk factors: macroeconomic uncertainty leads to a slowdown in the growth of downstream equipment investment; global geothermal power generation planning and construction is not as expected; the company's geothermal power generation project construction is not as expected; financing progress is not as expected; market competition aggravates the risk; exchange rate fluctuation risk; the company relies on risk for core technicians.

Investment suggestion: as a leading domestic screw compressor enterprise, the company has actively promoted the extension of the industrial chain in recent years, vigorously entered the field of geothermal power generation, and has now become a global leader in the field of geothermal power generation. We are optimistic about the company's global strategic layout and the strong growth potential in the field of geothermal power generation. Based on the above assumptions, we predict that the annual operating income of the company in 2022-23-24 is 3.96 billion / 5.08 billion / 6.9 billion yuan, the net profit is 470 million / 670 million / 1.09 billion yuan, and the current price corresponding to PE is 42-29-18 times. Considering the different business growth and business model differences of the company, we use the segment valuation method to value the company. For the compressor business, we select "Hanzhong Seiki", whose main business is screw compressors, as a comparable company. Wind unanimously expects PE to be 17 times in 2023. Considering the company's leading position and global overseas business growth, we value the company's compressor business at 20 times PE in 2023. The compressor business corresponds to a market capitalization of 6 billion. For the power sales business and geothermal power generation equipment + EPC business, we select the global ORC geothermal power generation leader "Omatt Technology", which is similar to the company's business model, as a comparable company. With reference to the company's 43 times historical average PE in the past five years and the company's business growth, we value the company's power sales business and geothermal power generation equipment + EPC business at 50 times PE value in 2023, corresponding to a market capitalization of 19 billion. In the end, we give the segment valuation method a 90% discount. Combined with the above valuation results, corresponding to the target price of 23 yuan, covered for the first time, given a "buy" rating.